(This is the sixth of a series of articles by Transparency Institute of Guyana Inc on the Production Sharing Agreement signed between the Government of Guyana and Esso Exploration and Production Guyana Limited, a subsidiary of ExxonMobil.)
In our previous articles, we have charged that the contract is illegal for the simple reason that at its root the contract is based upon an illegality, to wit, the issuance of the entire area of 26,800 square kilometers under a single licence instead of as the law required, 6 or more independent pieces each governed by its own licence. We showed where the discretion provided by regulation 13(1) is not unfettered as the action of the minister falls under public law in which it is held by British Law that there is no such thing as unfettered discretion.
We also claimed that there was no real need for such an extreme action to be taken as there were legal alternatives. There would have been no problem if the minister had issued the area under 6 separate licences to one company. The problem arises because the area was given out under a single licence, thus breaking the law. The national oil and gas discussion has proceeded, except where TIGI has pointed this out, as though it makes no difference whether the area was issued out wholesale or retail. This is a fundamental and costly oversight as we have shown.
For example, with 6 separate licences, the ridiculously low 2% royalty could have been contained in one licence. The damage would have been restricted to a smaller area of seabed. Ram et al have shown where the provisions of the law regarding the relinquishment of part of the area after a period without successful location of petroleum, have been suppressed in the 2016 contract to the point of being ineffective. Had the law been followed, there would have been areas available to the Guyana Government for reissue under more favourable terms. These could have been issued to the very Exxon or its associated companies but with the leverage to fall under independent and more favourable terms. All the while the same areas would have been able to be under the control of a US Company if that was indeed the desired protection needed.
The question arises as regards what professional advice was issued to the minister. Did the professionals who guided the minister not know the effect of the difference between issuance as a single super-block and issuance in 6 parts?
We cannot rule out incompetence on the part of the advisors. The reason is that the number of blocks issued is referred to in the contract as 600 in the 1999 but this figure is incorrect. The correct figure is 317 blocks. Apparently, someone made the mistake of assuming that each side of the rectangle along the longitude line was the same as the side along the latitude line shown in the diagram as 10 km. This is not correct according to the definition in the law of a graticular block.
We do not claim that this adds any more illegality to the matter. However, two things would have been clear. The first is that senior government functionaries who referred to the area as 600 blocks did not know how many blocks they had licensed! For example, at a local media corps meeting on Tuesday September 26,2017 ex-president Jagdeo is quoted as saying that “it is a fact ExxonMobil was given about 600 blocks in 1999” (INews Guyana, September 28, 2017).
The claim that government functionaries at the highest level did not know how many blocks they had licensed is not an overstatement. The area licensed according to the 1999 Licence is different from that stated in the 2016 contract (the same contract – according to Minister Trotman). The 1999 contract states under the First Schedule: Description of Contract Area that “The area comprising approximately 60,000 square kilometres described herein consisting of graticular blocks identified herein and shown on the block reference map attached.” The 2016 contract says that “The area comprises approximately 26,806 sq. km described herein consisting of graticular blocks identified herein and shown on the block reference map attached as Annex B.” The area awarded in the 1999 agreement is over twice the area stated in the 2016 agreement. What became of the other 33,194 square kilometers?
The second thing that would be clear is that Exxon would have realized this error even if the other party did not. The reason that Exxon has played the game of referring to the area as 600 blocks in the circumstances is a matter of conjecture. But it does suggest that the Guyana team was outclassed even in the basics.
At this point we will take time out to comment on the claim that the oil industry is so complex that it is understandable that mistakes are to be expected. We wish to point out that the calculation of areas such as defined in the Guyana law and every petroleum law we have seen, as regards the definition of a graticular block, was taught in high school math class in Guyana. So a good high school math student can calculate the area correctly.
Again, when TIGI called for publication of the petroleum contract in 2017, we had developed a list of questions that we felt should be asked on behalf of the Guyanese public. These questions were commonsensical questions and did not require a degree in petroleum to ask.
Here are a few that became very relevant as time progressed since then:
1. What is the basic unit of the commodity as specified in the exploration agreement – the thing that we are calling ‘oil’. … We note that the law governing this commodity is The Petroleum Exploration and Production Act 1986- Cap 65:10. From 1986 to 2017 is a period of over 30 years. This is an eternity … does it reflect modern values of such products and by-products if any? (With regard to this item, the need for updating of laws is the prime topic over the past year at least.)
4. How many blocks constitute the entire Guyana continental shelf and how many are left available for licensing to interested companies currently (that is, yet lying idle and yet to be awarded)? (We have not seen an answer to this question to date. The question takes on greater importance given the two different figures quoted in the two separate documents).
6. What is the current number of licenses that have been granted and which currently form the basis of active exploration? What are the names of the companies? (We have a list but given the government’s obsession with secrecy we cannot be entirely certain).
8. After the declaration of the oil find by Exxon, how many exploration licenses were awarded? How was the now recognized higher probability of an oil find in nearby blocks reflected in the licensing agreements? Were there cost and reward metrics that were adjusted accordingly in the new licensing agreements or was there some kind of bidding process? (We have no idea for the first part of the question but we know that no bidding process was involved).
9. On discovery of oil in a given area, how are the proceeds of that area differentiated from those from a geographically contiguous area associated with another permit? In other words, how are they separated; how is a drilling area delimited? (This became an issue with regard to “ring-fencing” of expenses).
11. Does each permit to explore have associated with it an automatic right to drill for oil?
12. Does the company which had the right to explore have a right to sell its rights to another company on discovery of oil? Is this right exercisable without the permission of the Government of Guyana?
21. Does each company build up an oil spill cleanup account over a period of time which account is under the control of the Government of Guyana or is there another insurance mechanism that will be triggered in such an event? (This is the one that worries most Guyanese).
The above seem to be basic questions that anyone would ask about oil exploration and about an emerging oil sector in the country. Asking such questions should not attract the popular derogatory reference of “oil experts”. Every citizen has a right to ask questions about what is happening with the country’s resources and they have a right to have those questions answered. Prior to the proposal of US$50 per barrel price of oil, TIGI had arrived at the same figure. Much of the relevant information can be reasonably arrived at by use of research tools available to all with the dedication of some time.
Petroleum has become an existential issue which will test the nation’s fibre. Guyana needs every hand on deck. It needs the fishermen at Berbice who expressed early concern about their living in the event of an oil spill and individuals such as Dr. Jan Mangal, Dr. Anand Goolsarran, and Christopher Ram who have maintained and continue to maintain a keen interest in what is happening in the emerging industry.
In our next article, we address the public policy issues.
